Gold price jumps as Fed’s Powell talks chance of recession and restrictive rates

(Kitco News) Gold erased its initial Fed-induced losses, jumping more than 1% on the day. Prices reacted to Federal Reserve Chair Jerome Powell’s comments on recession and peak rates following a third consecutive 75-basis-point hike Wednesday.   

December Comex gold futures neared $1,700 an ounce as prices jumped more than $20 on the day, last trading at $1,692 an ounce.

Commenting on aggressive rate hikes, Powell said a period of below-trend growth is very likely. “This is something we need to have,” along with softer labor market conditions, he said.

“No one knows if this process will lead to a recession or how significant that recession will be. That is going to depend on how quickly price pressures come down ... and whether we get more labor supply,” Powell added. "The chances of a soft landing are likely to diminish to the extent that policy has to be more restrictive."

But he also pointed out that failure to restore price stability would translate into even "greater pain later on."

#Powell on aggressive rate hikes: No one knows if this process will lead to a recession or how significant this recession will be. It depends on how quickly price pressures come down and if we get labor supply. Failure to restore price stability would mean greater pain. #FED pic.twitter.com/tEKFWPwsVJ

— Kitco NEWS (@KitcoNewsNOW) September 21, 2022

The big takeaway from Powell's press conference was the expectation of additional 125 basis points worth of increases this year, which could translate into another 75 bps hike in November and a 50 bps increase in December. But that depends on the incoming data, with decisions set to be made meeting by meeting.

"We should move our policy to a restrictive enough level that will move inflation down to 2%," Powell said.

The fed funds rate could go up to 4.4% at the end of this year and then rise to 4.6% in 2023, according to Wednesday's announcement. If this level is "restrictive enough" and inflation starts decelerating to the Fed's 2% goal, the U.S. central bank might slow down.

"We have raised rates by three percentage points his year. At some point, as the stance of monetary policy tightens further, it will become appropriate to slow," Powell told reporters.

To read more about the Fed's interest rate announcement, the dot plot and the updated economic projections, click here.